The ever-evolving jurisprudence and continuous amendments to the insolvency and bankruptcy laws, are a testament to the judicial and legislative attempt to cope with the challenges of the Insolvency and Bankruptcy Code, 2016 ("IBC" or the "Code"). While the Code has undergone several changes and has witnessed introduction of various new rules and regulations, it has also introduced a new category of professionals to the Indian insolvency regime, the insolvency professionals and with this new entrant, the legislature and judiciary have had to step in to determine the scope of eligibility criteria for the appointment of a Resolution Professional ("RP").

An Insolvency Professional1 ("IP") is the caretaker entrusted with the task of taking care of the Corporate Debtor's assets and day to day functioning of the Corporate Debtor's business. The role of an IP is vital to the efficient operation of the resolution process under the IBC. The role of the IP is that of an anchor of sinking ship who plays a significant role in protecting the interest of the Corporate Debtor and its creditors and other stakeholders. It is for this reason that the need of specialized professionals to complete the resolution process has been unequivocally emphasized.2

Owing to this extremely important role that an IP plays in the resolution process, that its independence from the stakeholders and impartiality is of utmost significance. The regulatory authority, Insolvency and Bankruptcy Board of India ("IBBI") has prescribed IBBI (Insolvency Professionals) Regulations, 2016 (the "Regulations") which incorporate the code of conduct that every IP is expected to comply with. Further, the IBC and the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 stipulate eligibility criteria for appointment of a person as a RP and provide that only a person who is an independent individual and has no relation whatsoever, with the Corporate Debtor, can be appointed as a RP. A very important factor which regulates the appointment of a RP is pendency of disciplinary proceedings. Any person against whom any disciplinary proceedings are pending is barred from being appointed as a RP under the Code. However, the aforementioned code of conduct does require RP to disclose its present and past relationship with various stakeholders.

Since the RP is vested with duties not only limited to managing operations of the Corporate Debtor, rather which extend to conducting committee of creditor ("CoC") meetings, collation of claims and such other duties, it is therefore, essential to analyse whether its independence and impartiality should be limited to independence from Corporate Debtor only. As a result, the independence and impartiality of the RP has often been put to test before the Adjudicating Authority and the Appellate Authority. The present article discusses the jurisprudence on such impartiality and independence conundrum and the developing regime on the surrounding issues.


The RP steers the entire Corporate Insolvency Resolution Process ("CIRP") and any association with any stakeholder may lead to apprehensions as to its impartiality and potential conflicts. Such objections have been subject matter of adjudication before the Adjudicating Authority and Appellate Authority and have been dealt with by the National Company Law Appellate Tribunal ("NCLAT") as under:

2.1 Whether an ex-employee of the Financial Creditor having rendered services in the past, should be permitted to act as 'Interim Resolution Professional' at the instance of such Financial Creditor.

The NCLAT, in judgement of State Bank of India v. M/s. Metenere Ltd.3 , dealt with this issue and prima facie observed that so long as the IP is not disqualified or ineligible to act under the provisions of IBC and the Regulations thereunder, there shall be no bar to act as Interim Resolution Professional ("IRP") at the instance of such Financial Creditor. However, on analysing the facts and circumstances of the case, it was held that the issue of apprehension of bias cannot be dismissed offhand.

The facts before NCLAT were that the Appellant Financial Creditor had proposed an ex-employee with thirty-nine years of service and a present-day pensioner of Financial Creditor as the IRP. The Respondent Corporate Debtor objected and raised apprehensions regarding his impartiality owing to his long association with the Financial Creditor. The Corporate Debtor contended that since the IP is still drawing pension from Financial Creditor's organization, the IP is on the payroll of the Financial Creditor. In view of the above, it was submitted that the IP is an interested party and cannot be expected to function in an impartial manner. The impugned order sided with the Corporate Debtor and directed replacement of the proposed IRP.

The NCLAT, partially rejected the above argument of the Corporate Debtor. It was observed by the NCLAT that an ex-employee is entitled to such pension for services rendered in the past and merely for reasons that the IP is drawing pension from the Financial Creditor's organization does not make him an interested party. In the same breath, however, the NCLAT observed that the objection of bias is to be tested basis the reasonableness of apprehension of bias, as per the perception of the Corporate Debtor and upheld the credibility of Corporate Debtor's apprehension.

The NCLAT held that the impugned order is free from any legal infirmity or flaw and, therefore, refused to interfere with the impugned order.

2.2 Whether empanelment of proposed RP as an Advocate or Company Secretary or Chartered Accountant with the Financial Creditor can be a ground to reject the proposal of his appointment.

The NCLAT, in State Bank of India v. Ram Dev International Limited4 considered as to whether the Adjudicating Authority can reject the proposal of the CoC for appointment as an RP, on the ground that the proposed RP is empaneled with a member of the CoC.

State Bank of India ("SBI"), being aggrieved by an order of the Adjudicating Authority rejecting the proposal of CoC for appointment of a RP who was empaneled with a member of the CoC, preferred the present appeal. The CoC, by a majority vote, decided to replace the appointed RP, as per Section 27 of the Code which entitles the CoC to replace the RP at any time, during the pendency of the CIRP, if in its opinion the same is necessary. However, the impugned order rejected such replacement on the ground that the proposed RP is ineligible to act as he is empaneled with the Financial Creditor.

The Appellant challenged the impugned order on the ground that empanelment with the Financial Creditor's organization is not considered a bar for appointment of RP, as per the provisions of the Code.

The NCLAT accepted the submission of the Appellant and whilst discussing the provisions of the Code, stated that the only bar for appointment of a RP is pendency of any disciplinary proceeding against such proposed RP and no other ineligibility is prescribed, as per the Code or the regulations framed thereunder. However, the NCLAT was careful to qualify the above bar by stating that the Adjudicatory Authority can, for omission of duties (or wrongful commission thereof) committed by the RP, remove the RP for reasons to be recorded in writing.

Moreover, it was argued by the erstwhile RP that no reasons or grounds have been recorded by the CoC justifying such replacement, whereas, the Appellant contended that no such reasons or justifications are mandatory and it is the discretion of the CoC to replace the RP at any stage during the CIRP. The NCLAT rejected the submission of the erstwhile RP by holding that Section 27 of the Code does not make it mandatory or even desirable for CoC to record its reasons or make any adverse remarks against the RP who is sought to be replaced. Accordingly, the impugned order was set aside, and the previous RP was replaced with the RP proposed by the CoC who was empaneled with one of the members of the CoC.


3.1 United Nations Commission on International Trade Law (UNCITRAL) legislative guide on insolvency law ("UNCITRAL Guide") 5

UNCITRAL Guide assigns the IP (or insolvency representative, as referred to in UNCITRAL Guide) a central role in the effective and efficient implementation of insolvency law, with certain powers over debtors and their assets and a duty to protect those assets and their value, as well as the interests of creditors and employees. IP is mandated to ensure that the law is applied effectively and impartially. UNCITRAL Guide prescribes that the IP must be appropriately qualified, must have appropriate knowledge and experience in the matters connected with the duties assigned to it and must bear personal qualities such as integrity, impartiality, independence and good management skills.

An essential component of such personal qualities is independence from vested interests, whether of an economic, familial, or any other nature. It is essential to demonstrate lack of conflict of interest. The UNCITRAL Guide provides that conflict of interest may exist for a variety of reasons, including but not limited to, prior relation or engagement to a creditor of the debtor. It is for such purpose, the UNCITRAL Guide calls upon the insolvency law, to impose an obligation to disclose existing or potential conflicts of interest, which would apply to a person proposed for appointment as an insolvency representative at the commencement of the proceedings and to the appointed person on a continuing basis, throughout the proceedings and consequences of such conflict or lack of independence.

3.2 The Report of the Bankruptcy Law Reforms Committee ("BLRC Report") 6

The BLRC Report states that the IP plays a vital role in an insolvency process. The framework provides that the entire insolvency and bankruptcy process to be managed and regulated by an IP appointed by the Adjudicating Authority and the functions include identification of the assets and liabilities of the defaulting debtor, its management during the insolvency proceedings if it is an enterprise, preparation of the resolution proposal, implementation of the solution for individual resolution, the construction, negotiation and mediation of deals as well as distribution of the realization proceeds under bankruptcy resolution.

In discharge of these functions, the IP is required to act as an agent of the Adjudicating Authority. Efficient functioning of IP will enable Adjudicating Authority to delegate more and more functions to IP and ensure efficient utilization of judicial time.

The BLRC Report, therefore, mandates that the IP must act independently, objectively and with impartiality and must never commit fraud or abuse or undue influence on behalf of its clients.


In the present form, the Code prescribes certain bar and disclosures to keep in check the vested interest of a RP. Section 7, 9 and 10 read with Section 16 and 27 of the Code prescribe a bar against appointment of a proposed IRP or RP, as the case maybe, if any disciplinary proceeding is pending against such proposed IRP or RP.

Furthermore, the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 prescribe eligibility criteria for appointment of an IP as RP. Regulation 3(1) thereof stipulates that the IP shall be independent of the Corporate Debtor and where he is a partner or director of an insolvency professional entity, all the partners or directors shall be independent of the Corporate Debtor.

Therefore, while appointing an IP as IRP or RP, the Adjudicating Authority has to merely ascertain: (a) whether there is any disciplinary proceeding pending against the IP; and (b) whether the IP is independent of the Corporate Debtor. Apart from the aforesaid two-fold test neither the Code nor the Regulations thereunder postulate any other bar or criteria for appointment of a RP.

However, Ram Dev International Limited (Supra), prompted the legislature to amend the Regulations to introduce the requirement for disclosure as per code of conduct prescribed in the Regulations. The code of conduct provides that the IP must disclose to the applicant and the CoC, existence of any pecuniary or personal relationship, either directly or indirectly, with any stakeholders who may be entitled to distribution of proceeds of resolution plan or debtor's estate. It also prescribes disclosure as to whether the IP has been an employee or has been in the panel of any Financial Creditor of the Corporate Debtor.

However, despite necessary disclosures, the IRP or RP can only be replaced by the members of the CoC under Section 22 or Section 27 of the Code, with a resolution mandating such replacement passed with sixty six percent voting share of CoC, which renders the disclosures somewhat redundant.


It is beyond any doubt that the RP is vested with the duty to propel the whole resolution process as guided by the CoC. The RP performs variety of key functions, from collating the claims of creditors, including Financial Creditors, based on which the voting share of each creditor in the CoC shall be determined to managing the operations of the Corporate Debtor, the RP provides an overall professional facilitation to all stakeholders for logical resolution or conclusion of insolvency.

The Supreme Court has clarified that the role of a RP is not adjudicatory but merely administrative7 . However, owing to the very nature of the functions and duties carried out by a RP, a biased administration of the resolution process is not a mere hypothesis, rather an eventuality. The gaps in the legislation may allow a biased or non-independent RP to administer the rights and benefits of a particular stakeholder beneficially, at the expense of the others. A legislation, by its very nature, being prone to multiple interpretations can be misused or misinterpreted by a biased executor. It is for this reason and for such proximity to the CIRP process that the independence of the RP and its impartiality assumes importance.

The current framework does provide for disclosures to the stakeholders, including the CoC, regarding existence of pecuniary or personal relationship with any of the stakeholders, employment or empanelment with any Financial Creditor and disclosure of such other conflicts of interest which may impede in independent functioning of the RP. However, the Code is yet to provide for provisions for any bar on appointment or a remedy/ resolution mechanism, in case of, existence of a conflict of interest. Therefore, in absence of any provision barring the appointment of RP or IRP in case of conflict of interest vis-à-vis any stakeholder, the judgment by NCLAT in M/s. Metenere Ltd. (Supra) may be a stepping in the realm of jus dare.

In the present framework, the apprehension of independence of RP becomes irredeemable, in a situation where the conflict of interest pertains to the Financial Creditor having majority voting share in the CoC. In other words, despite the prescribed disclosures, a creditor having a majority voting share in CoC, may appoint a non-independent RP, rendering the disclosures meaningless. Since, the RP is a facilitator of the CIRP and is guided by the decisions of CoC, existence of any such prior relationship with the creditor with majority voting share may hinder the CIRP and turn into a mechanism to benefit such creditor. Therefore, impartiality and independence of RP forms the crux of effective and successful CIRP.

The issue of independence of RP garners more prominence in relation to its appointment as liquidator, where the CIRP fails. It is pertinent to note that, unlike RP, a liquidator has adjudicatory powers. For timely and speedy resolution or liquidation, which is the essence of the Code, it is provided under Section 34(1) of the Code that under normal circumstances the RP shall continue as the liquidator, whereby the provision as to replacement are provided under Section 34(4) of the Code. Since, the eligibility criterion of liquidator is akin to that of RP, there is no bar for a biased RP to act as a liquidator despite assuming quasi-judicial functions. It is, therefore, ideal that the issue of independence of RP vis-à-vis other stakeholders is taken care of at the outset, instead of merely having the RP to disclose its conflict, which may be not be of much consequence.

Undoubtedly, the acts and decisions of RP and liquidator are subject to challenge before the Adjudicating Authority. However, such conflicts can delay and derail the CIRP or liquidation, as the case may be, which goes against the very spirit of IBC for speedy resolution of insolvency. The apprehension of delay is not unfounded, especially, owing to the huge backlog of cases and overburdened judiciary in India.

Therefore, it may be necessary that a proposed IRP or RP with such conflicts of interest and apprehensions of bias be barred from appointment as the IRP or RP, at the threshold, in order to avoid potential conflicts and challenges during the course of CIRP. This can ensure smooth and speedy resolution and lessen burden on the Tribunals.


1. Known by different titles in different jurisdiction, such as, "insolvency representative" "administrators", "trustees", "liquidators", "supervisors", "receivers", "curators", "official" or "judicial managers" or "commissioners".

2. Matter No. IBBI/DC/15/2019-20, Order dated 14th November 2019, before Insolvency and Bankruptcy Board of India, Disciplinary Committee.

3. Company appeal (AT) No. 76 of 2020.

4. Company Appeal (AT) (Insolvency) No. 302 of 2018.

5. UNICITRAL (2005), "Legislative Guide on Insolvency Law", United Nations Publication, para 35 at p. 174, available at https://www.uncitral.org/pdf/english/texts/insolven/05-80722_Ebook.pdf, last accessed on 22nd June 2020.

6. Bankruptcy Law Reform Committee (2015), "The Report of the Bankruptcy Law Reforms Committee, Volume I: Rationale and Design", available at https://ibbi.gov.in/BLRCReportVol1_04112015.pdf, last accessed on 22nd June 2020.

7. Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and Ors., 2019 (16) SCALE 319

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